On January 11, 2021, the tax court issued a new opinion concerning the application of the Federal Credit For Increasing Research Activities. In Tangel v. Commissioner, the taxpayer—a designer and manufacturer of integrated controls and switchgears utilized in power generation—was denied its claimed R&D credit by the IRS. After receiving its notice of deficiency, the taxpayer brought suit in the tax court seeking a redetermination. For procedural reasons, the court limited its opinion and ruling to a single project performed under contract by the taxpayer. The Service argued that the research performed by the taxpayer under this third-party contract was “funded” as defined under section 41 of the code. Specifically, the government contended that under the contract, the taxpayer retained no substantial rights in the results of the research.
Updated Dec 28, 2020
Officially signed into law on December 27th, the recent omnibus Covid-19 relief bill H.R. 133 reversed the Service’s previous stance regarding the deductibility of PPP-related expenditures. Among the bill’s voluminous provisions, section 276 (beginning on page 2004) makes clear that no deduction shall be denied as a result of a PPP loan’s forgiveness. Consequently, a taxpayer’s potential federal research credit will be unaffected as a result of the taxpayer’s utilization of a PPP loan and subsequent loan forgiveness. This protection is extended both to loans under the original Paycheck Protection Program as well as future loans to be granted under the bill’s expanded program.
Populous Holdings, Inc. v. Commissioner marks a highly favorable case decision for taxpayers claiming the research and development tax credit in general, and for the architecture industry in particular. In Populous Holdings, the court granted summary judgment in favor of the architectural design services taxpayer, holding that all five representative contracts at issue in the case were unfunded and therefore eligible for inclusion in calculating the tax credit.
A recent opinion by the California Office of Tax Appeals (OTA) ruling against an apparel industry taxpayer demonstrates a continuing trend by federal and state taxing authorities to focus on a taxpayer’s ability to substantiate adherence to meeting each element of the four-part test under section 41—most notably the process of experimentation requirement. In addition, the ruling indicates increasing scrutiny regarding a project’s activities having been undertaken for a permitted purpose.
Taxpayers rejoice! A recent case decision signals good news for the R&D legal landscape—Audio Technica U.S., Inc. v. U.S. In this case, the taxpayer was a manufacturer of high-quality audio and microphone equipment. After being denied its claimed research credit during audit, the taxpayer sought to litigate the issue through the Northern District of Ohio in June of 2019 in an 8-person jury trial.
Some of you may have spent many nights in the grips of a TV crime series or real-life court case; you speculate on the accused, the innocent…the evidence. Whether fact or fiction, in these dramas, the arrest or verdict always comes down to the evidence. It can prove guilt or innocence. But without compelling evidence, justice is not served, and the appropriate outcome is mislaid.
“Cultivators of the earth are the most valuable citizens. They are the most vigorous, the most independent, the most virtuous, and they are tied to their country and wedded to its liberty and interests by the most lasting bonds.”
“A penny saved is a penny earned.”
The premise behind the centuries-old idiom suggests that saving money you already possess is just as beneficial as earning more; that a person or business should not only focus on making money, but also secure and retain some of the money earned.
“The Greatest Trick the Devil Ever Pulled…
…was convincing the world he didn’t exist” explains Roger “Verbal” Kint in the 1995 cult classic The Usual Suspects, a gripping crime drama depicting the deceptive power of hiding in plain sight.
As one of its primary themes, the film emphasizes how often we fail to perceive what’s right in front of us when it flies in the face of our preconceived notions. This mental barrier causes the film’s lead detective to ultimately let a golden opportunity—catching a shady criminal mastermind—slip through his fingers.